In this timely and thoroughly researched book—destined to become an obligatory reference in the field—Jerome Roos takes up the unsettled question of why, even on the verge of collapsing under the weight of crippling sovereign debt burden and facing the threat of social turmoil, countries do not simply default. The question, which has haunted economists since Eaton and Gersovitz’s (1981) seminal article “Debt with Potential Repudiation: Theoretical and Analysis” (Review of Economic Studies, 48[2], 289–309) inspired a growing theoretical and empirical literature elaborating on the likely costs of default. According to Roos, none of the explanations advanced—reputation, gunboat diplomacy, trade sanctions, democratic institutions—has been able to withstand empirical scrutiny.

The book rises to the challenge and, building on the insights of sociology, proposes an insightful critical political economy framework. In their overly simplistic assumption that states behave as benevolent dictators, economic models typically assume away distributional conflicts and power dynamics. By depoliticizing sovereign debt, the author argues that the current literature fails to recognize the practical reality that the decision to default depends on who will pay and how. Once the question is reframed, the focus shifts to the power struggles over distribution of adjustment costs between three actors—private and official sectors lenders and the debtor’s relevant political constituency—and to the incentives and constraints that they impose on the sovereign debtor. These actors, accordingly, can induce compliance through three enforcement mechanisms: market discipline imposed by international creditors’ cartels; conditional loans provided by international lenders of last resort; and internalization of fiscal discipline led by domestic elites, whose interests and ideology are often aligned with external capital.

Recent transformations in the global economy, including primarily an unprecedented concentration and centralization of international credit markets, have produced systemically important and politically powerful financial institutions. Coupled with the increasingly interventionist role of official lenders, which will only dispense emergency loans under harsh conditions, this invisible power of finance, structurally embedded within the global financial architecture, facilitated the formation of an international creditor’s cartel capable of wreaking havoc on a country’s domestic economy by credibly threatening to withhold short-term credit and, in doing so, to generate unbearable short-term spillover effects. The author contends that this constellation of forces explains the relative decline in unilateral defaults over the last 30 years.

The book is organized into five parts, each subdivided into multiple chapters. Part I reviews the literature on sovereign debt; it lays out the three enforcement mechanisms and the conditions under which these are likely to be effective and under which they break down. Part II presents a brief history of sovereign default from the late middle ages to the 1970s. What follows is three carefully researched case studies scrutinizing the most important sovereign debt crises in the last decades in light of the incentives and constraints imposed by the three compliance mechanisms. Part III, IV, and V are dedicated to the Mexican (1982–1989), Argentinian (1999–2005), and Greek (2010–2015) crises, respectively.

Among the many virtues of this excellent book is its breadth of coverage, both in the longitudinal and cross-sectional dimensions, in such a relatively concise volume. Inevitably, however, some questions are left for future work and some fruitful approaches get slighted. The nature, magnitude, and frequency of debt crises might differ over time and across space, as well as their causes, be they mismanagement or exogenous shocks, so the challenge to any comparative approach is to ensure the ceteris paribus condition. Additionally, some natural limitations result from the book’s almost exclusive reliance on secondary sources, qualitative evidence, and, to a lesser degree, on tables and figures reprinted from previously published works, which one sometimes feels are used selectively or do not conclusively establish the claim being made.

The three case studies are generally consistent with the book’s central claims that (1) the failure of all three mechanisms is a necessary condition to trigger unilateral default, and that (2) the strength of those mechanisms over time led to a recent decline of unilateral default over the past four decades. However, further work could embed those claims into a rigorous empirical research design, one that makes systematic use of data to test for causality and to determine whether this plausible storyline can be extrapolated to account for other default episodes beyond these case studies. Along the same lines, one might entertain alternative hypotheses to the decline of unilateral default, such as the increasing role of international institutions in facilitating negotiation and coordination, the shift over time in formal and informal norms that regulate how states deal with each other, and the rising role of retail investors as key participants in sovereign debt markets.

A related assertion in the book is that the relative decline of unilateral defaults translates into a shift in the costs of adjustment falling disproportionally on debtors. While plausible, data on haircuts and bond ownership over time could be offered to substantiate the claim.

Not all defaults are born alike. It is, therefore, surprising that the definition of “default” is often taken for granted in the sovereign debt literature. An exception, this book issues a welcoming invitation: “[W]hat is needed, therefore, is an alternative typology of default that recognizes the different forms that nonpayment can take in practice, and that is capable of accounting for the political characteristics of each.” Other authors may want to follow up on that call and further refine the book’s unilateral vs. multilateral classification, challenging it and expanding it into a typology of default that incorporates its legal, consequential, and determinant aspects.